Things You Should Know About Tax Deductions on a Home Loan - Loan Trivia


Full-Width Version (true/false)

Thursday 25 March 2021

Things You Should Know About Tax Deductions on a Home Loan

According to the Income Tax Department, only 1.46 crore Indians pay taxes on their income. This data is alarming, especially when compared against the around 130 crore population of the country.

Therefore, to encourage more Indians to pay income tax, the government provides various benefits. A notable one is home loan tax deduction, where individuals can claim attractive discounts on their taxable income based on their home loan principal and interest liabilities.

Things to know about tax benefits on home loans

Here are 3 major pointers to be aware of home loan tax deductions – 

  1. On the interest repayment

Home loan borrowers can reduce taxable income by up to Rs.2 lakh thanks to their home loan interest payment. This clause falls under Section 24(b) of the IT Act. A point to note here is that, before claiming this deduction, the construction of the property should be completed, and it has to be a self-occupied home and not a let-out property.

Furthermore, borrowers are also eligible to claim an additional benefit of up to Rs.1.5 lakh under Section 80EEA. However, to be eligible for this deduction, the home loan must be approved between 1st April 2019 and 31st March 2020. Also, the property value must not exceed Rs.45 lakh.

Therefore, eligible homebuyers can lower taxable income by up to Rs.3.5 lakh on their home loan interest payments. 

  1. On the principal repayment

Borrowers can save up to Rs.1.5 lakh on the principal repayment of their home loan under section 80C. They can also claim tax exemption on stamp duty and charges under this section.

However, a point to note here is that once claimed, homeowners cannot sell their property in the next 5 years. Otherwise, the exemptions will be reversed.

  1. Additional deductions

Apart from the aforementioned home loan tax deduction, individuals can also claim an additional exemption under section 80EE. This particular benefit is limited to only first-time homebuyers, where they can claim an extra Rs.50,000 on interest payment every year.

Apart from these, here are some additional pointers to be aware of when it comes to home loan tax exemptions –

  • Tax deductions are only available when the construction of the property is complete or individuals purchase a house and move in. Also, there are additional tax benefits for under-construction property as well.

  • In case homeowners purchase a property and put it on rent, there is no upper limit to a tax deduction.

  • While repaying a home loan, if borrowers continue to stay in a rented property, they are eligible to claim deductions on their HRA as well.

Tax exemptions on joint home loans

Home loan tax deductions are also applicable for joint home loans, where each borrower can claim these benefits. The deduction amount, however, remains Rs.1.5 lakh on principal payments and Rs.2 lakh on interest payments.

Besides the tax savings, the home loan application process has also become simpler. The implementation of the online process has solved queries like how to apply for home loan or how to pay income tax. One can quickly complete such tasks with the help of respective websites without any hassle.

The availability of pre-approved offers has streamlined the loan application process as well. It is applicable to financial products like home loan, loan against property, etc. Individuals can check their pre-approved offer by submitting their essential contact details.

A home loan tax deduction allows borrowers to save substantially on their tax payments. Moreover, filling the ITR on time is also crucial as it acts as income proof, which is one of the documents required for home loan approval.

No comments:

Post a Comment